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Policing agency now active; aims to monitor and enforce policies on all companies in the channel.
“The message I want to impart and what I want to instill in your compliance protocols is to take it seriously and get it right.”
—Lois Greisman, associate director, division of marketing practices, FTC
The self-regulatory body will monitor and act upon all companies identified as direct sellers and multi-level marketers, whether or not they are members of the industry association.
“… any companies or operations that choose not to cooperate can be identified to the government for further action, and to the public as those who will not cooperate.”
—Joseph Mariano, president, DSA
Last August, Social Selling News reported on the U.S. Direct Selling Association’s (DSA) announcement of the formation of a new self-regulatory body that would monitor and act upon all companies identified as direct sellers and multi-level marketers, whether or not they are members of the industry association.
The entity is now live and has a name: the Direct Selling Self-Regulatory Council (DSSRC). It is staffed and ready to work as of January 1, 2019.
“We recognize we have to do this for the betterment of the industry and for our reputation,” said Joseph Mariano, DSA president, in the original announcement last June.
Former and current commissioners at the Federal Trade Commission (FTC), as well as other governmental agencies have encouraged the development of a self-regulatory agency within the direct selling community for many years. Mariano says, “The FTC has told us, ‘if you want us to take you seriously and reduce the resources that we have to spend in order to make sure your marketplace is operating effectively, then have an organization that’s independent, credible and significantly resourced, that has buy-in from the entirety of the industry and is transparent in terms of its processes and results.’ And that is exactly what’s been done.”
When asked whether a referral by the DSSRC to a regulatory body such as the FTC would spur additional action, Mariano says, “Yes. We know for a fact that companies that are referred by other self-regulatory agencies to the FTC are put at the top of the stack and given priority.”
As the channel continues to evolve amidst a variety of external pressures including those brought by technological advances, economic fluctuations and new business opportunities, the DSSRC appears poised to address many of the issues that beleaguer the channel.
The launch of the council was applauded by Lois Greisman, associate director of the division of marketing practices for the FTC Bureau of Consumer Affairs, during her presentation to direct selling executives and supplier members at the industry’s Fall Conference.
In her speech, Greisman emphasized her high expectations of company practices aligning with FTC regulations. She said, “The message I want to impart and what I want to instill in your compliance protocols is to take it seriously and get it right. And when I say ‘take it seriously,’ I mean you need to pay attention to, monitor and enforce your compliance protocols.”
Greisman ended her remarks with a strong endorsement of the DSSRC, saying it is a “really terrific step.” She added, “As I’ve said repeatedly, I am an avid fan of self-regulation for many reasons. It promotes robust competition. It can be more agile and efficient than law enforcement. Genuine self-regulation provides a great boost to legitimate commerce.”
Daily Operations and Structure
Peter Marinello, the vice president of the Council of Better Business Bureaus and the director of the Electronic Retailing Self-Regulation Program will serve as the council’s executive director. Marinello is a member of the New York State Bar and has specialized experience in advertising self-regulation, having written over 750 self-regulatory decisions.
Marinello and the staff, which will include a full-time staff attorney, a paralegal and administrative support, will office in New York.
According to Mariano, the daily operations of the council staff can be relegated to three components: 1) issues and complaints that reflect a systemic concern or problem that come in from referrals either from the DSA, the code administrator, Better Business Bureau (BBB) complaints or others, 2) issues raised or complaints filed by another company which will then be reviewed and adjudicated by the council, and 3) a pro-active review of the marketplace, particularly in social media, for patterns or practices by either the company directly or the sales field that violate the council’s standards.
The first six months of the program, Mariano adds, will be focused on familiarizing companies with the program, continuing to educate the DSSRC staff with the nuances and specifics of direct selling, and communicating information to both DSA member and non-member companies about what to expect from the council’s efforts. Mariano reiterates that all companies operating with multi-level compensation plans and/or otherwise identified as direct selling or social selling companies will be held to the council’s standards, monitored and corrected where necessary.
The Process of Review, Adjudication, Action and Appeal
As staff members of the DSSRC become aware of specific concerns or patterns of behavior that violate the council’s standards, the process from that point will mirror the well-defined processes in use by other self-regulatory entities functioning in other industries, particularly the process utilized by the Advertising Self-Regulatory Council (ASRC).
In fact, the DSSRC will be functioning as a unit under the ASRC’s auspices. Mariano says, “The processes are quite defined and are based on the existing structures already in place for the BBB and the ASRC. During this transition year, we can really see what works in the process and what needs to be refined.”
The process includes timeframes for responses from the identified company as well as the complainant, processes and procedures for when and if a company is determined to be subject to remedial action, and also an appellate procedure.
Mariano says, “Any enforcement, whether it be self-regulatory or governmental, has to be dedicated to a system of due process where there’s an opportunity to be heard. The advantages of a self-regulatory program is that it comes with a body of knowledge and experience that government can never have, and a flexibility to look at what’s happening and determine a course of action.”
Mariano describes what he envisions by the start of 2020 for the council: a system that is monitoring the marketplace and has identified areas that need to be improved. The council will have dealt with “real problems, and any companies or operations that choose not to cooperate can be identified to the government for further action, and to the public as those who will not cooperate.”
He adds, “The track record will demonstrate that the council is dealing with real problems in the marketplace in a substantive and credible manner. Companies and interested parties will be able to look at the decisions and understand what they can and cannot do in regards to earnings, claims, product presentations and other related issues.”
All materials, cases handled and decisions written by the DSSRC will be recorded in a searchable database, managed under the purview of the council. DSA members will have access to the entire database at no charge; non-members may access it for a yet-undetermined cost.
Profiles of the Good and the Bad
The profile of a company that should be nervous about the council’s enforcement agenda would include one that has little or no compliance efforts in place, warns Mariano.
“A company that engages in or turns a blind eye towards out-of-bounds income representations or product claims and does not engage in significant monitoring of their own field will have problems,” he says.
On the other hand, “those companies who are engaged in their own consumer protection efforts, who treat their distributors and customers well, who can demonstrate to outside observers who’s buying their product, why and in what quantities—these companies will have nothing to fear and nothing to worry about.”
Mariano’s statements about who is buying the product, why and in what quantities echo FTC assistant director Greisman’s words from her speech last fall. She said, “How do you get it right? Have reliable and direct evidence that the business is being driven by actual sales to real retail customers.”
Greisman added, “How can you not be curious about who’s actually consuming—and I mean ingesting or otherwise using—your product, and in what quantities?”
The recent FTC/Herbalife settlement and Vemma decision, as well as the FTC Business Guidance Concerning Multi-Level Marketing released Jan. 2018 all emphasize knowing a company’s “true” customers, apart from tracking wholesale sales to the distributor.
In her speech, as Greisman ticked off the problematic areas for direct sellers, she repeatedly said, “Again, look to the Guidance,” found at www.ftc.gov, saying that it “teases out” the topics by providing additional clarifying information.
These boundary lines, along with Mariano’s description of the companies who have “nothing to fear” from the DSSRC’s activities, will shape the continued evolution of direct selling throughout the next decade.